Homeowners have been warned to prepare for a loss in property values due to a decline in the housing market. The result of losing property value could impact the ability to remortgage and the offers available to the homeowner. The economy keeps taking swings at consumers and for homeowners the hit could take them by surprise as they wait unaware of what is to come. There is little that can be done about the housing market or how it will perform in the months ahead, but those impacted by it could prepare and avoid damage as much as possible.

For homeowners, the situation concerning property value comes into play when they come to the end of their current mortgage term. There are thousands that will have their mortgage term expire by the end of the year or in the coming year. A lot of those homeowners secured a two-year fixed mortgage deal when interest rates were very low, and in some cases historically low.

In October 2021, the standard base interest rate was at almost zero at 0.1%. In December 2021, the Bank of England’s Monetary Policy Committee (MPC) increased the rate for the first time of what would be fourteen consecutive meetings that resulted in rate hikes. Throughout 2022 the rate grew and continued to do so until September 2023 when the MPC kept the rate steady. 

In comparison of rate levels, in October 2021 the rate was 0.1%. In October 2022, the base rate was 2.25% and it currently, in October 2023, is 5.25%. The difference in cost between the rates is a lot, and for homeowners it is a substantial cost difference due to the high level of debt amount connected to the interest rate.

Those still on their fixed mortgage term from 2021 or 2022 have been shielded from the rate increases, but at the end of their term their fixed interest rate will end, and they will either choose to remortgage or allow their lender to move them to their standard variable rate or SVR. Of the two choices, a remortgage is the choice with the cheapest rate and the only choice to offer a fixed rate. 

Experts encourage homeowners at the end of their term to remortgage due to the ability to save money and avoid paying more than necessary such as what could occur with a SVR. 

Declining property values due to the drop in demand from home buyers could block a homeowner’s ability to remortgage or have them missing out on the better deals.

Should the property value decline below the debt on a house, the homeowner has fallen into negative equity. Until the property is out of negative equity, the homeowner cannot remortgage. For those remaining in positive equity, there is still the issue of the loan to value ratio or LTV. The greater the loan in relation to the property value the higher the risk for the lender, while the greater the value in relation to the loan the lower the risk in lending and the better rate options available to the homeowner.

Property values matter long after the initial purchase of a home. It matters when the property is sold, and hopefully for a profit. It matters when the homeowner stays put and seeks the most affordable remortgage.

This is why the latest information from UK’s largest mortgage lender, Lloyds Banking Group should be considered by homeowners in need of a remortgage or soon to need one in the months ahead.

Lloyds Banking Group has predicted a decline in house prices for the year of 4.7% and a continued decline of another 2.4% next year. House prices are not expected to recover until 2025. Positive growth would be steady with prices rising modestly at 0.6% by 2027.

Taking forecasts of the performance of the housing market into account, homeowners can create a strategy for saving money and making the most of their opportunity to remortgage. Some will wait out their term, others will remortgage without a penalty fee before their term ends to take advantage of the current competitive lending market, while others will take on a penalty fee to be able to remortgage early to avoid possible higher rates when their term ends.

It is quick and easy to gather remortgage quotes to determine what offers are available. A homeowner could visit the website of a remortgage broker to gather numerous quotes from a variety of lenders and possibly an exclusive deal not offered directly from lenders to borrowers. Quotes could also be gathered by going website to website of remortgage lender sites. Once quotes are in hand, a homeowner can review and compare the offers and make a choice that could save money and help the homeowner’s budget no matter what the economy may bring next year and the one after.